Tax Treatment of Capital Losses

Index - https://steemit.com/tax/@alhofmeister/2666al-tax-blog-index

Introduction
The purpose of this post is to explore the consequences of a capital loss in a tax year. In this post, I will explore the difference in the tax treatment between an individual and a corporation.

Discussion
A taxpayer will recognize a capital loss in the tax year that they dispose of a capital asset (such as stock, bonds, cryptocurrency, etc.) receiving boot (cash or other valuable property) that is worth less than they originally paid for the asset. Capital losses are first used to offset capital gains in the same year. What happens if the capital loss is not entirely offset then differs depending on whether the taxpayer is an individual or a corporation. Capital losses recognized by pass through entities are treated as separately stated items and recognized by the owners.

Individual

1. Capital losses may be deducted up to $3,000 a year against ordinary income.
2. Any excess capital losses may be carried forward indefinitely.

Corporation

1. Capital losses may not be used to offset ordinary income.
2. Any excess capital losses may be carried back 3 years or carried forward 5 years.

References
https://www.irs.gov/taxtopics/tc409
https://www.law.cornell.edu/uscode/text/26/1212

Disclosure
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.